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About Loans for Minorities

Minorities are considered priority sector for loan disbursement. RBI (Reserve Bank of India) has set guidelines for extending loans to this sector. Domestic scheduled commercial banks and foreign banks which have over 20 branches are mandated to provide 40% of Adjusted Net Bank Credit (ANBC) or Credit equivalent amount of Off-Balance Sheet exposure (whichever is higher). Loans to minorities refers to funds advanced to sections which are considered weak. The weaker sections include persons from minority community also.

Loans For Minorities
Loans for Minorities

Definition of Minority Communities

As per the Ministry of Welfare, Government of India, the following communities have been notified as minority – Sikhs, Muslims, Christians, Zoroastrians, Buddhists, Jains. These communities have been identified based on their population in relation to the overall population in India. Banks are mandated to focus on lending to the applicants who fall within this category. The terms of the loans are relatively favorable, hence, making it an attractive proposition for the applicant as well.

Special cell and nodal officer requirement

The RBI guidelines indicate that the bank must establish a special cell for lending money to minority community and must designate an executive officer. The cell must be headed by a bank officer who holds the position of Deputy General Manager or Assistant General Manager.

The banks also must depute an officer in each of the minority concentration districts. They must focus on resolving problems pertaining to credit flow and make credit available at conducive terms. The officer would not only be responsible to conduct research and assess the common problems of this community but will also be responsible for formulating schemes suitable for members of the minority communities.

Understanding Loan for Minorities

Minorities in India are considered under privileged and have limited access to many aspects including funding for various purposes such as education, business set-up etc. Acknowledging this fact, Government of India has introduced various schemes which will enable this category of borrowers to access funds at conducive terms. The loans extended to minorities qualify for differential rate of interest (DRI). The DRI scheme was introduced by RBI and most commercial banks have been mandated to extend loans under the DRI scheme for the upliftment of the under privileged and to enable credit access to this section of the population.

The State Minority Finance/Development Corporation has mandated that banks should extend funds under DRI scheme to minority communities. These loans bear the same terms and conditions as the loans that are routed through SC/ST development corporations.

What is DRI Scheme?

Differential Rate of Interest (DRI) scheme is also known as DIR, it was launched in the year 1972 to provide credit access to low income groups. The loan scheme enables banks to lend to weaker section of the society at a concessional interest rate. The interest rate applicable is 4% per annum.

DRI loans scheme (also known as DIR loan scheme) was introduced in the year 1972 to financially assist chosen low income groups. The loan scheme envisages lending by banks to weaker section of the society at a uniform concessional rate of interest of 4% per annum. The salient features of DRI scheme are –

Purpose of DRI scheme – Provides concessional rate of interest at 4% p.a. to the weaker communities in the society. These schemes enable the weaker sections to engage in productive and gainful activities so that they can improve their economic standing in the society.

Eligibility for DRI scheme – The applicant should have annual income of not more than Rs. 7200 (cumulative across all family members) in the urban or semi-urban areas and Rs. 6400 per family in rural areas. The land held by the applicant should not exceed one acre of irrigated land and 2.5 acres of unirrigated land. This criterion is applicable to SC/ST as well.

Quantum of loan – The loan value designated under this scheme has a limit of Rs. 6,500 for productive purposes. A borrower will have the preferential rate of interest only on this amount, the loan amount over and above this value will be charged at the regular interest rate. Physically handicapped persons can avail additional assistance of Rs. 5000/- with the purpose of acquiring aids, appliances, equipment, provided they are eligible for the same.

Collateral – There is no requirement for collateral or third-party guarantee. The assets which are created or bought from the loan amount will be hypothecated to the banks.

Government initiatives for minorities

The Government of India has established National Minorities Development and Finance Corporation (NMDFC) which promotes economic and developmental activities among the weaker sections of the society who have been earmarked as minorities. NMDFC is the body at the centre and it channelizes the funds allotted to this section. It routes the funds through State Minority Finance Corporation of the respective State / Union Territory Government. NMDFC has launched Margin Money Scheme which is still at nascent stages. Under this scheme, banks extend finance upto 60% of the project cost. The balance cost is shared by NMDFC, the State channelizing agency and the borrower (beneficiary) in the proportion of 25%, 10% and 5% respectively.

The Government of India has set a priority sector lending target for Minorities by defining a 15-point programme. This program aims to ensure that an appropriate percent of lending by commercial scheduled banks are reserved exclusively for the minority communities. The overall target for priority sector lending and sub-target of 10% for the weaker sections has been mandated and the banks are required to adhere to the same.

Lending schemes offered by NMDFC

The lending schemes offered by NMDFC are –

  • Micro Finance :

    Under the micro finance scheme maximum loan of upto Rs. 1 Lakh at an interest rate of 7% per annum. This is the maximum limit for credit line – 1. The maximum loan for credit line – 2 is Rs. 1.5 Lakh at an interest rate of 10% per annum. Female beneficiaries can avail the same loan at 8% per annum.

  • Education loan :

    Beneficiaries who fall under the minority category can avail education loan upto Rs. 15 Lakh which is extended at concessional interest rate of 3% per annum. The tenure for such loans is maximum 5 years and available for professional courses.

  • Mahila Samridhi Yojana :

    Ministry of Social Justice and Empowerment Department of Government of India introduced the Mahila Samridhi Yojana to empower the women entrepreneur. This scheme provides funding to the extent of Rs. 60,000 or 95% of project cost per beneficiary whichever is lower. Interest is chargeable at 4% per annum from the beneficiary and the State Channelizing Agency (SCA) pays 1% per annum.

    The Government of India has undertaken other types of promotional initiatives to enable weaker sections of society to take up employment. Loans to minorities enable empowerment of underprivileged.

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